Shoes of Prey facing uncertain future amid $3 million funding talks

Three weeks ago, an email landed in the inboxes of some of Australia’s most respected start-up figures, including billionaire Atlassian co-founder Mike Cannon-Brookes and representatives from some of the nation’s top venture capital funds.

It was from Shoes of Prey CEO Michael Fox. He was seeking fresh funding from his investors.

“Over the last 2 years we've made very good progress with our manufacturing capability however we've struggled to grow at the rates we'd forecast,” the email read.

The unlisted, custom shoe design start-up wanted to raise $3 million in a “bridge round”. The funds would be used to help it shift to a new business model. And to avoid a less palatable fate.

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"The terms are significantly lower than our last round of funding, but with no alternatives other than winding up the company our board today resolved to recommend this offer to shareholders," wrote Fox.

Shoes of Prey in recent years emerged as one of the shining lights of Australia’s booming internet start-up scene. Now it's facing an uncertain future, and appears to be battling for survival.

Founded in 2009, the company allows people to customise their own shoes online and have them delivered from a factory in China in as little as two weeks. The company has raised $US29.5 million in total from investors, according to Crunchbase, a database of start-up funding.

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In 2015, it moved its head office from Sydney to Santa Monica, a neighbourhood in Los Angeles. That year, it also secured $US15.5 million in funding, including from top US investment funds Greycroft Partners and Khosla Ventures, as well as upscale American retailer Nordstrom, which had opened Shoes of Prey design centres in some of its stores in the country.

Now, as part of a strategy adjustment, it is focusing on "Cinderellas" - customers with shoe sizes outside of the standard ranges, as well as private label manufacturing for other brands. The early results from the new strategy, Fox told investors, were "very promising".

Shoes of Prey chief creative officer Jodie Fox (who was previously married to Michael) confirmed the funding talks when contacted on Sunday, but declined to comment on the specifics of negotiations, citing confidentiality.

We are optimistic and just like any start-up it is our duty to ensure the business remains well-funded to explore these opportunities.

Jodie Fox

The funding would be used to explore opportunities for women with unique sizing requirements, and to support the new strategy of private label manufacturing, she said.

"We're excited by this and thankful to our investors who have backed us to help us achieve our mission," she said. "We are optimistic and just like any start-up it is our duty to ensure the business remains well-funded to explore these opportunities."

Shoes of Prey lost about $6 million last year, on net revenue of about $7 million, according to a side deck sent to investors.

Jodie Fox said the funding would be used to explore opportunities for women with unique sizing requirements, and to support the new strategy of private label manufacturing.Credit:Wayne Taylor

The company expects to turn profitable by 2021, at which point it is forecasting net revenue of $44 million.

Under the proposed new strategy, the company says it will open up its on-demand supply chain to other labels. There are about 50 brands in the pipeline for the new private label offering, it said.

The company believes the new strategy could "transform the women’s footwear industry" and significantly enhance its clients’ profitability. This is because it could reduce risks around unsold inventory.